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Interbank Rate Rises On Cash Flow To Bond Purchases

Nigeria’s overnight interbank rate rose on Friday to around 4.5 percent from 3.5 percent penultimate week, after commercial lenders made payments for local currency denominated bond purchases, which drained liquidity in the system, reports Reuters.

Nigeria sold about N170 billion in long-tenor local currency bonds on Wednesday, while payment for the debt was due on Friday.

The central bank also sold about N63.98 billion of 7-month treasury bills at 9 percent on Thursday to further curtail excess liquidity in the banking system.

However, N91.42 billion in matured treasury bills was retired on Thursday, resulting in net cash inflow of N27.44 billion into the system.

Traders said liquidity level stood around N414 billion on Thursday, compared with N401.7 billion last Friday, but the level is expected to have dropped after the payment for bonds and possible debit for cash reserves ratio (CRR) on Friday.

“We see further rise in the cost of borrowing among banks this week because of expected cash flows to treasury bills and forex purchases, while there would be no major cash inflow into the system,” one dealer said.

Commercial lenders are expected to make provision for foreign exchange purchases by Tuesday, which will further drain liquidity from the system and push up interbank interest rate, traders said.